Pricing Your Products
by: Marc Singer
In our scramble to find a way to offer the lowest prices on the Internet, we often overlook the basic steps that we should be taking BEFORE we even offer a product for sale.
We also overlook something even more important: you don’t HAVE to have the lowest price in order to make great sales. Following are some things I do before and after determining my bottom line. I sell by having products dropshipped for my sites, which works VERY well, but these steps should be covered no matter your distribution method.
Should you be selling this item now?
Snowboards don’t sell well in the summertime. You may have a hard time moving a pair of roller blades in January. Don’t waste your time and your site space marketing products out of season. Ask your supplier for a little historical information regarding the best time to sell their products. Believe me, to everything, there IS a season. They have the figures. If they don’t want to share this info with you, find another supplier.
Identify your costs
Profit isn’t just the difference between wholesale and retail. You have other costs to consider. Think about every penny you spend in order to get that product to the customerกs door, and plan accordingly. For example, your merchant account probably costs you about 2.2% plus 30 cents per transaction. On an item youกll sell for $20, thatกs 74 cents. Don’t forget that calculation when pricing the item. Are you warehousing the item? How much is that space costing you per item per month? Did you spend money stocking up on shipping materials? How much per unit? What about advertising? Monthly hosting costs? You may need to project some estimated sales in order to arrive at some of these figures.
This may seem very complicated, but itกs really not. Just take the figures one at a time, and youกll arrive at a wholesale cost plus an amount that, when added together, becomes your initial ESTIMATE of กcost of goods soldก. Identifying all your costs is critical if you want to price your products properly.
Check out the competition
Search on the item you plan to sell. Check out the competitorsก prices. But DON’t get caught up trying to beat the wrong competitor. You need to stay within your กvenueก.
My stores are built in Yahoo Shopping (http://store.yahoo.com). 90% of my traffic comes from there. When I seek out my competitors, I look for other businesses like mine ONLY in Yahoo Shopping. Then I compare.
If Iกm thinking about selling a product, and I get 1,500 hits in 400 stores on that item in Yahoo Shopping, forget it. If I get a hundred hits in 20 to 40 stores, Iกll look into it further.
So check out the competition, narrow down your product list, make a note of the five lowest prices you find, and then ask yourself another question:
Is anybody going to buy this thing?
This doesn’t have much to do with pricing, but it should be said.
When considering products, thereกs unique, and then thereกs too unique. Yak Cheese may sound like something that nobody else has for sale on the กNet. Thereกs a reason for that. If you sell more than 3 boxes a year, Iกll EAT some.
Unique is Rain Barrels made in Maine. Itกs Exotic Cheeses imported from Italy. Silk Parisian Lingerie. Things you don’t see every day, but would be proud to give as a gift.
Then thereกs กcommonก. Everybody and their grandmothers are selling Alabaster Figurines on the Internet. Do they sell? Sure, in a limited fashion. Do you want to sell them? Not if you want to make any real money.
In my experience, unique products, like Rain Barrels and Parisian Lingerie, DO sell. So do Coleman Sleeping Bags, and Conair Hair Dryers. BRAND NAMES sell. Look at your potential product, and ask yourself honestly if YOU would buy it on the กNet.
Set your price
Take the five lowest prices you collected on a product in your list that has survived the above. Calculate your estimated cost, then subtract that from the lowest price. If you don’t see at LEAST 15% profit, don’t bother.
If you do, there are a couple of ways to proceed. You can undercut the lowest price in your กvenueก by a bit, and hope to กkick offก the product and get yourself noticed. Chances are, though, that the following week youกll find that someone has undercut YOUR price by just a bit. That becomes a losing game.
I generally set up a couple of กloss leadersก. These are desirable items (in my general product line) that I sell dirt cheap just to bring in customers. Then I price the rest of my products at the second or third lowest price in my venue. The customers come in for the loss leaders, and then I can market everything else to them via email. I spend a lot of time making my site look better and easier to navigate, and pay a great deal of attention to my customers.
That makes me more reputable in the eyes of the customer. Youกll find that people don’t mind paying just a little more if they feel comfortable in your store. They don’t like to worry that they’re buying from a กhackก who may not deliver. Nothing says กhackก like a cluttered, confusing storefront.
Follow up
After youกve sold an item for a month or two, revise that กcost of goods soldก. Measuring past performance is just as important as setting the correct price to begin with. If sales drop, recheck your competition. If thatกs not it, drop the product, or shelve it until the กseasonก comes back around. Don’t get sentimental about your products, and NEVER just let your store sit there in limbo once it starts to make money. This is a dynamic business; stay on top of it!
A last word (or three)
Retail pricing on the Internet is so fraught with permutations that it would be impossible to cover everything here, even if I KNEW everything. The steps above are just the basics of a process that works for me. Hopefully something here will strike a chord and work for you as well. Patience and persistence are the keys to a successful Internet business, so hang in there, and don’t quit the day job for at least a couple of weeks. ;o)
I hope this helps in your future marketing decisions.
About The Author
Marc Oswald Singer
CEO WSP Advertising Inc.
http://www.wspromotion.com/
This article was posted on August 26, 2004
by Marc Singer